Credit or debit?
If you’re one of the many people who avoids credit cards in fear of interest rates, you’re missing out on quite a few benefits. Here are four major advantages that credit cards have over debit cards:
Through either reward points or cash back, credit cards earn you a return on your spending. Very few debit cards have any sort of rewards, and for those that do, the rewards are far less than what you’d get using a credit card.
Sign-up bonus offers for credit cards are an excellent way to earn rewards quickly. Many credit cards have bonuses of 50,000 points or more for hitting certain spending minimums in the first 3 months. That’s enough points for $500 cash back or multiple domestic round-trip airline tickets.
2. Building Your Credit Score
Signing up for a credit card, using it and paying the bill every month is one of the fastest ways that you can improve your credit score. The most important factors in regards to your credit score are your credit utilization, your available credit and your bill payment history. Obtaining and using a credit card helps you in all those categories, whereas using a debit card has no effect on any of them.
3. Consumer Protection
Credit cards offer much more protection than debit card. As long as you report lost or stolen credit cards in a timely manner, your maximum liability on unauthorized credit card purchases is $50, and often you won’t be liable for anything. While debit cards also offer protection, if you don’t report the loss or theft within 48 hours, your maximum liability goes up to $500, and then there’s no limit if you don’t report it for 60 days.
You can dispute unauthorized transactions and transactions where the merchant didn’t satisfy their end of the agreement with both credit and debit cards. There’s an important difference, though. When you purchase something with a debit card, the funds are taken out of your account, while credit card purchases go on your bill. During a credit card dispute, you don’t need to pay the disputed transaction, so you aren’t out any money during that process. With a debit card dispute, you won’t get a refund until after the dispute process, which could be a problem if you need that money immediately.
It’s smart to be careful about using credit cards, because if you don’t pay off your balance, you will incur interest charges. However, their numerous benefits make credit cards a much better way to pay than debit cards. Just pay off your bill every month and you’ll reap the benefits without any risk.